India's already-squeezed IT services sector is likely to take a further hit as new and impending rule changes in its biggest markets add another level of uncertainty to a situation rife with dwindling margins and static demand.

The $150-billion export-focussed IT services industry is now facing a hike in the cost of work visas (H1-B and L-1) in the United States, a market which accounts for a bulk of its revenues. Many large companies send thousands of IT professionals to the United States every year to work "on site," industry jargon meaning customer locations. The new fees, due to kick in on April 1, 2016, will impact the profit margins of large firms like TCS, Infosys, and Wipro, which use the largest number of H1-B and L-1 visas.

The visa fee hike, approved some weeks ago by the US Congress, has doubled the visa costs for high-skilled IT workers who are the biggest applicants for the H1-B and L-1 short-term work visas. Certain categories of H1B visa applicants must pay a $4,000 fee and some applying for L-1 are required to pay $4,500. The firms may be unable to pass on the fee hike to customers with whom current projects are already negotiated.

The fee hike applies only to companies that have more than 50 workers in the US and where 50% of these workers are foreign nationals. India's IT sector is branding the measure discriminatory.

"India and the US have built a strategic partnership across sectors and they recognize that free movement of global talent is a critical success factor for this partnership. Discriminatory or protectionist measures will end up impacting the local US industry and their access to local talent," said C.P. Gurnani, CEO of Tech Mahindra, India's fifth-largest IT services firm whose customers include Cisco Systems and Bridgestone.

Global IT consultancies like IBM and Accenture have massive operations in India and employ many Indians in the United States, too. But they will not be affected as they do not go over the 50% foreign nationals stipulation. India's largest industry group CII said the visa fee hike was aimed at targeting only Indian IT companies.

Meanwhile, in the United Kingdom, the IT sector's second-largest market, a government committee has proposed raising the minimum salary level of IT workers and has recommended an immigration health surcharge and immigration skills charge on foreign employees.

India's IT sector exports 61% of its services to the United States and 19% to the United Kingdom. Europe, which accounts for 8% of the exports, is proposing data localization and Canada, which accounts for 2% of exports, is contemplating restrictions on intra-corporate transfer of employees.

The IT industry lobby group Nasscom estimates that Indian firms will incur an estimated $400 million annually because of the visa fee hike and a further $400 million from the UK move. Over the coming decade, the US fee hike alone will add $4 billion to Indian IT firms' costs.

"What we are seeing is a trend of protectionism," said R. Chandrashekhar, president of the IT industry trade grouping, Nasscom. "The industry is global, its workforce is global and data moves around globally. Any fetters imposed on the IT industry work as a trade barrier and are similar to import duties. We are very concerned," he said.

To counter the visa spike, IT companies will gradually work on increasing customer fees. Many of them will cut down the number of workers they send overseas and, instead, execute projects at home.

"Companies will aggressively do more work offshore," said Chandrashekhar.

India's IT companies are good at reinventing themselves when faced with challenging situations, said Anand Parameswaran, senior VP, HR and business excellence at the Hyderabad-headquartered $446 million-in-revenues Cyient.

"They are going to find another way to deal with changed situation," he said.

Already IT firms are making small acquisitions in the United States and Europe to front-end their work.

"Companies are building a global network of operating centers so that the dependence on the visa regime — and the need to move people back and forth — will keep coming down," said Parameswaran.